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Challenging Oracle

As the Justice Department and Oracle face off, the competitive landscape for business applications takes an unexpected shift.
A key point of debate in the courtroom last week was where to draw the line between medium-sized and large companies or those with varying levels of sophistication. PeopleSoft chief technology officer Richard Bergquist admitted under cross-examination that it can be hard to distinguish between so-called low-function and high-function companies. "I don't have any dividing lines that I've seen," Bergquist conceded.

Microsoft's emerging role makes it a wild card in the case. Microsoft Business Solutions' revenue climbed 21% to $471 million in the first nine months of the company's current fiscal year, and the division plans to release major upgrades to each of its four enterprise-resource-planning suites over the next 12 months. Despite the false start with SAP, Microsoft is sticking with its stated strategy of aiming primarily at small and midsize companies. Even so, Satya Nadella, a corporate VP with Microsoft Business Solutions, leaves some room to maneuver. If a large company is defined "as being made up of a lot of small enterprises," Nadella says, "then you're absolutely right, we'll definitely be in that business."

Verizon's Bradley expressed concern that Oracle would phase out PeopleSoft's applications. "The development of the PeopleSoft code base, its constant feeding and care, is critically important to us," she said. When an Oracle lawyer tried to prod Bradley into admitting she would still have negotiating room even if Oracle acquired PeopleSoft, she remarked: "You can tell me I have two loathsome options, but that's not going to make me much happier that I only have two."

Oracle contends it would not only continue to enhance PeopleSoft's applications but provide support for the PeopleSoft product line for at least 10 years. By comparison, SAP is giving its customers until 2012 to move from its older generation of applications, and Microsoft has indicated it will support the four ERP suites it has acquired--Axapta, Great Plains, Navision, and Solomon--until 2013, as it makes room for an entirely new set of apps in development now. Oracle's plan seems within the norm.

Yet even Oracle customers are sympathetic to the concerns of PeopleSoft users worried about eventually having to migrate to another application environment. "It's a very, very big job to convert a major system over," says Allen Fox, director of IT applications with Alcatel Internetworking Inc., a longtime Oracle customer.

Cost is the other big concern. Lehman Brothers analyst Herman says the cost of ERP software has been declining steadily in recent years, but he acknowledges Oracle would probably gain pricing leverage if it were to acquire PeopleSoft. "The Department of Justice has brought up some extremely valid issues," he says. Lehman Brothers has provided services to both Oracle and PeopleSoft in the past 12 months.

The outcome of the trial will only partly determine how things change in the applications market. Even if Oracle wins, it would still have to pull off the financial transaction. And by then, the unpredictable competitive landscape may already have shifted.